Fed's Lacker: Stock Declines Probably Won't Derail QE Tapering

Federal Reserve Bank of Richmond President Jeffrey Lacker said a decline in global stock markets probably won’t deter the Fed from further trimming bond buying that has pushed up central bank assets to $4.1 trillion.

“The hurdle ought to remain pretty high for pausing in tapering,” Lacker, who doesn’t vote on policy this year, said to reporters after a speech in Winchester, Virginia. “We linked the asset purchase programs to significant improvement in the outlook for labor market conditions. That has definitely occurred.”

The Federal Open Market Committee last week trimmed its monthly bond buying by $10 billion for the second straight meeting, cutting purchases to $65 billion following gains in the job market and signs of stronger spending by businesses and households.

The fall in equities hasn’t “affected the outlook for labor market conditions materially at this point,” Lacker said. The unemployment rate probably held steady last month at 6.7 percent, according to economists surveyed by Bloomberg News.

U.S. stocks advanced, with the Standard & Poor’s 500 Index rebounding from its biggest drop since June, as investors assessed corporate earnings and data showing factory orders fell less than estimated in December. The S&P 500 rose 0.6 percent to 1,752.91 at 11:04 a.m. in New York. The benchmark equity index has fallen 5.2 percent this year.

Global investors pulled $6.3 billion from developing-nation equities in the week through Jan. 29, the biggest outflow since August 2011, according to Barclays Plc, citing data from EPFR Global. The MSCI Emerging Markets Index declined 0.9 percent to 918.22 and has fallen 8.4 percent this year.

‘Always Cognizant’

“The committee is always cognizant of global economic conditions and developments,” Lacker said at Shenandoah University, adding that his colleagues have to make policy choices focused on Fed goals for the U.S. economy. “We conduct policy to achieve price stability and maximum employment here in the United States.”

Policy makers last week left intact their forward guidance on the federal funds rate, saying it will probably “be appropriate” to hold the benchmark lending rate in a range of zero to 0.25 percent “well past the time” the unemployment rate falls below 6.5 percent, especially if inflation is forecast to be below the Fed’s 2 percent target.

Federal Reserve Bank of Richmond President Jeffrey Lacker said a decline in global stock markets probably won't deter the Fed from further trimming bond buying that has pushed up central bank assets to $4.1 trillion.